How to Revise Salary Structure Without Legal Issues on PF Payments?

Urgent Guidance Required for Salary Structure and PF Impact

I require guidance on an urgent basis for making a salary structure and its effect on PF. To date, we have been taking 30% of CTC as Basic and 24% as the PF amount. For example, if the CTC is 15,000, then:

- Basic: 4,500
- HRA: 1,575
- Spl Allowance: 5,571
- Conveyance: 800
- Education Allowance: 200
- Medical: 417
- Total: 13,053

- PF 24% (on basic): 1,080
- LTA: 417
- Bonus 10% (on basic): 450
- CTC: 15,000
- P.TAX: 200

My MD has asked to revise the salary structure and increase the Basic Amount to more than 6,500 so that PF exemptions can be made, i.e., PF payment is stopped. I require help in the following:

1) We are a 2-year-old company, and PF has been paid for more than 170 employees. If we now suddenly make such changes and stop PF payment, are there any legal issues? Can we do that by providing a reason to the government that as the salary structure is revised and Basic is 6,600, no employee is ready to have PF deduction, and hence we are stopping PF? Please guide me as the new salary structure is to be implemented by March 2012, and I need to provide a report after working to my MD.

Thank you in advance.

Regards,
Suman

If your employees are already covered under PF deduction, even if you raise the basic salary to Rs. 6,500/-, they will not be exempted from PF coverage. Instead, if you want to ensure that PF is not deducted, you should terminate them from regular employment and, after 60 days, re-induct them as new regular employees. Even though there is a way to skip PF deduction, it is not morally right to deny your employees the benefits of the Social Welfare Scheme. All contributions made by your employer to this fund are allowable expenses under the Income Tax Act.

Any business grows faster when it incorporates Social Corporate Responsibility and Business Ethics.

With Regards,
C. Renuka

Thank you for the prompt reply. I am already aware that once we have started with PF Deduction, we cannot stop unless the employee has left. However, our company is almost a Lala Co, and the MD does not believe in obeying Government rules. We HR people are forced to follow the instructions.

Feasibility of Terminating and Re-recruiting Employees

But how can I terminate all 190 employees and re-recruit? It's not feasible. Is there any other option?

Regards

We can show a few employees exiting in February and then March. Alternatively, we can choose to only show people exiting on paper and not deduct PF for two months, and finally implement the new salary structure.

In the past (2 months ago), I asked for valuable guidance from all of you regarding PF nullification for my current company, which is hardly 2 years old. I was advised to take resignation (on paper) and then, after a two-month gap, to recruit all employees in the group (on paper).

Query on Employee Deductions and Benefits

I have a query regarding this. There are a few employees who have been facing deductions for 15 years or more (from their past company until now). They are now asking about the benefits if they were to stop and accept such deductions. Could you please help me out with the PF amount/gratuity amount they can receive if they continue or if we advise them for other fixed investments?

This is urgent.

Regards,
Suman

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